Zero-rate loans: how they work and what to watch out for

Zero-rate loans: how they work and what to watch out for

We are increasingly hearing about zero-interest loans that promise to make us have the liquidity necessary to carry out our projects or to meet unexpected expenses without additional disbursements in repaying this amount. But what are the factors to evaluate when choosing a zero interest loan ? Nowadays it is easier to evaluate the convenience of a loan because by law in the contract must be clearly and clearly shown many indices, however you must pay attention to some elements that can prove to be very important for the convenience of the loan to zero rate that we are evaluating. From which elements, therefore, can a real zero-rate loan be recognized by someone else who can reserve some surprises instead?

Let’s see how to juggle between Tan (nominal annual rate), Taeg (annual percentage rate), real zero rate and other indices that may be present in the contract that we are about to underwrite.

Tan and Taeg, what are they?

When you intend to take out a loan to buy a good or service or to face an unexpected expense it is good to consider that the amount that will be granted will have to be repaid through monthly installments which provides for the repayment of capital plus a portion of interest. The magnitude of these interests can be calculated by two types of rates: the Tan (nominal annual rate) and the Taeg (annual percentage rate). Another element to be assessed when considering a loan is stamp duty, which can be charged to the financial institution or the applicant: according to law it costs € 14.62 for contracts with a duration of 18 months or less. for those with a longer duration it is equal to 0.25 percent of the total. It is useless to say that in a real zero rate loan the stamp duty should be paid by the financial institution.

Tan and Taeg, all you need to know

When deciding to apply for a loan, the indices to be assessed are Tan and Taeg. The first is the Nominal Annual Rate, which is the pure interest rate that is applied to your loan, calculated without taking into account the necessary accessory expenses; often, therefore, this value is zero and is advertised with great evidence when financing is proposed. The Tan, however, unfortunately does not represent the true interest rate of the loan: for this it is better to take into account the Taeg. The Global Effective Annual Rate can be considered the real interest rate, which includes the interest rate and all the expenses necessary for the investigation of the loan.

A practical example? If a loan of 1,000 euros has a nominal annual rate of 0 percent but includes 100 euros of ancillary costs, you will have a Tan equal to zero but a Taeg of 10 percent and the total amount to be repaid, including Tan and Taeg, it will be 1,100 euros.

The real zero-rate loan, the features

Summing up, then, what features must have a real zero-rate loan ? The financing you are evaluating is really zero-rate if both the Tan and the Taeg are clearly reported in the contract that you are submitting and if both are zero. Not only that: also the commissions, taxes, brokerage fees, the actual cost of the loan and all the actual costs of the loan must be clearly reported and must be borne by the financial institution or credit institution that provides the loan, as also the stamp duty, which by law costs € 14.62 for loans with a duration of less than 18 months and 0.25 of the total if the duration is longer.